Current State of On-Chain Arbitrage Competition: Bidding Fails
On the Bitcoin blockchain, arbitrageurs typically bid higher fees to get their transactions prioritized by miners for profitable opportunities. However, reality is more complex: even a top bidder can fail because some mining pools employ non-public transaction ordering mechanisms — effectively creating a 'dark pool' for arbitrage.
Mining Pool Private Ordering: The Source of Information Asymmetry
Mining pools hold the final say over transaction inclusion. Some pools privately reorder transactions, prioritizing their own or allied trades (e.g., large arbitrage, front-running) while delaying high-fee transactions from external competitors. This opaque ordering creates information asymmetry: arbitrageurs cannot reliably predict whether their transaction will be processed first, rendering bidding strategies ineffective. Similar to how dark pools obscure order flow in traditional finance, this practice introduces a new barrier in Bitcoin on-chain arbitrage competition.